Evening Market Update

Bulls Triumph For Third-Straight Day

US stocks posted another solid day of gains, sparked by an ECB announcement of new liquidity measures to support banks in the eurozone. Investors were also happy to see a smaller-than-anticipated increase in weekly initial jobless claims ahead of tomorrow’s all-important non-farm payrolls report. Treasuries moved lower amid the strength in equities, while oil and gold prices gained ground. Equity news was dominated by September same-store sales reports from the nation’s retailers, with most of the results coming in above expectations. Target, Limited Brands and Saks were among the best sales performers during the month, while J.C. Penney and Gap both came up short of estimates. In other equity news, the board of Corning announced a 50% increase to the company’s quarterly dividend and authorized a $1.5 billion share buyback. Finally, Apple announced that its Chairman and co-founder Steve Jobs died on Wednesday at the age of 56.

The Dow Jones Industrial Average rose 183 points (1.7%) to 11,123, the S&P 500 Index gained 21 points (1.8%) to 1,165, and the Nasdaq Composite advanced 46 points (1.9%) to 2,507. In heavy volume, 1.1 billion shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil rose $2.90 to $82.58 per barrel, wholesale gasoline gained $0.11 to $2.68 per gallon, and the Bloomberg gold spot price increased $7.52 to $1,648.38 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—fell 0.6% to 78.52.

The Chairman and co-founder of Apple Inc. (AAPL $377) Steve Jobs died on Wednesday at the age of 56. After battling pancreatic cancer and receiving a liver transplant several years ago, Jobs stepped down as CEO in August, with Tim Cook taking over as the company’s chief executive.

Meanwhile, the nation’s retailers reported results for September same-store sales (sss)—sales at stores open at least a year—headlined by Target Corp. (TGT $52), which announced a 5.3% increase year-over-year (y/y), compared to the 3.9% gain that analysts surveyed by Reuters had anticipated. TGT said September sales were “somewhat ahead of our expectations,” as it experienced “strong sales” throughout the month and across a broad array of merchandise categories, even in “this soft economic environment.” TGT traded nicely higher.

Also, Macy’s Inc. (M $26) posted September sss growth of 4.9% y/y, above the 4.4% increase that the Street had forecasted, and Kohl’s Corp. (KSS $50) reported its September sss advanced 4.1%, topping the 2.2% estimate of analysts, while TJX Companies (TJX $56) announced a 4.0% rise in sss, above the 3.2% gain that analysts anticipated. Moreover, upscale retailer Saks Inc. (SKS $9) achieved better-than-forecasted results, as its sss grew by 9.3% during the month, compared to the 6.5% increase that was anticipated. Shares of TJX were lower, while Macy’s, KSS and SKS finished higher.

However, J.C. Penney Co. Inc. (JCP $29) reported a decline of 0.6% in sss for the month, versus the increase of 0.6% that analysts had projected, and cut its 3Q sss and earnings guidance, due to weaker-than-anticipated sales performance during the first two months of the quarter. JCP traded to the upside despite the results.

Elsewhere, Gap Inc. (GPS $17) reported a 4.0% drop in y/y September sss, versus the 3.8% decline that analysts had projected, and Limited Brands Inc. (LTD $41) said its sss for the month grew 11%, exceeding the 4.6% increase that the Street was expecting. Shares of both companies overcame early losses to finish higher.

Finally, the board of Corning Inc. (GLW $13) approved a 50% increase in the company’s quarterly dividend to 7.5 cents per share from 5 cents per share. Additionally, GLW authorized a share repurchase of up to $1.5 billion. Shares moved higher.

Jobless claims rise after the previous week’s tumble

Weekly initial jobless claims  rose by 6,000 to 401,000 last week, following the steep decline in the previous week to 391,000, which was revised to 395,000, and below the 410,000 level that economists surveyed by Bloomberg had expected. Also, the four-week moving average, considered a smoother look at the trend in claims, declined by 4,000 to 414,000, and continuing claims dropped by 52,000 to 3,700,000, below the forecast of economists, which called for a 3,725,000 reading. Although the level of initial claims moved above the key 400,000 mark, the figure was somewhat of a relief as the US Labor Department noted that the previous week’s sharp drop was skewed by issues with seasonal adjustments so a larger rebound had been anticipated.

Treasuries were lower, as the yield on the 2-year note was 1 bp higher at 0.27%, and the yields on the 10-year note and the 30-year bond gained 10 bps to 1.99% and 2.96%, respectively.

Europe rallies on bank recapitalization hope and following central bank meetings 

Focus across the pond was on monetary policy meetings from the Bank of England (BoE) and the European Central Bank (ECB). Both the BoE and the ECB left their respective benchmark interest rates unchanged, as expected, at 0.50% and 1.50%, respectively, while the BoE unexpectedly announced a 75 billion pound increase in its asset purchase program to 275 billion. In the customary press conference that followed, ECB President Jean-Claude Trichet said that policymakers discussed the pros and cons of decreasing rates but they decided by consensus to “maintain rates.” But the ECB did offer measures to “ensure that euro-area banks are not constrained on the liquidity side,” announcing that it will conduct a new 40 billion euro covered bond purchase program and will offer 12 and 13-month refinancing operations, with unlimited size. The central bank last utilized these measures in 2009 amid the fallout from the global financial crisis. Also, he said tensions in financial markets are likely to continue to dampen the pace of economic growth and the economic outlook remains subject to “particularly high uncertainty and intensified downside risks.” Moreover, Trichet noted that inflation remained elevated and is likely to stay above their target of 2% over the months ahead but decline thereafter, and the pace of monetary expansion continues to be moderate. Finally, the head of the ECB added that, “The Governing Council does not consider it would be appropriate that the central bank would leverage the European Financial Stability Facility (EFSF),” as some have proposed as a way of fighting the eurozone debt crisis.

This was the last monetary policy meeting for Trichet, as his eight-year term as the head of the ECB will end on October 31, when Italy’s Mario Draghi takes over. The euro moved lower versus the US dollar following the ECB meeting but has erased losses and is higher, aided by comments from German Chancellor Angela Merkel suggesting that the EU should take another look at efforts to boost capital in banking sector, an apparent loosening of her stance on bank recapitalization. Additionally, European Commission President Barroso gave further hope for a potential coordinated recapitalization of eurozone banks, saying “We are determined to do everything necessary to ensure that Europe’s banks are able to play their essential role in lending,” per Bloomberg, adding that “close coordination” at the European level is essential.

In other economic news, German factory orders unexpectedly fell month-over-month (m/m) in August, along with UK home prices in September, while Switzerland’s consumer prices came in hotter than anticipated for September.

The lone major economic report out of Asia/Pacific showed that Hong Kong’s PMI Index decelerated from 47.8 in August to 45.9 for September, with a reading below 50 denoting contraction in business activity. Action was light in the region, as China’s Shanghai Composite Index and India’s BSE Sensex 30 Index were closed for holidays.

Back in the Americas, Canadian building permits fell 10.4% in August, in sharp contrast to the 0.3% advance expected by economists.

Will the US labor report follow the trend of less bad?

After a string of US economic data this week that have been better than expected, including the ISM Manufacturing and non-Manufacturing Indexes, construction spending, and retail same-store sales, as well as increases in the employment component of the ISM Manufacturing Index, ADP payrolls and a smaller decline in initial jobless claims than expected, traders will be watching closely to see if the Labor report can follow through on the bullish trend. The survey of economists by Bloomberg is forecasting nonfarm payrolls grew by 55,000 month-over-month (m/m) in September, after posting a disappointing flat performance in August. Excluding government hiring, private sector payrolls are expected to increase 90,000, after expanding by 17,000 in August, the unemployment rate is expected to remain at 9.1%, and average hourly earnings are expected to rise 0.2% m/m in September.

Other releases on the US economic calendar tomorrow include wholesale inventories, expected to rise 0.6% in August after gaining 0.8% in July, while consumer credit is expected to grow by $8.0 billion in August, at a slower pace than the $11.97 billion gain posted in July.

International economic releases scheduled for tomorrow include Japan’s leading index, PPI in the UK, France’s trade balance, Germany’s industrial production, Canada’s employment, September exports from Taiwan, and consumer prices in Mexico. In central bank action, the Bank of Japan will conclude its two-day meeting, and traders will be monitoring if the bank increases its asset purchase program or intervenes to stem yen strength.